HAVING failed to get Rupert Murdoch’s attention before, Brian Roberts, chief executive of Comcast, certainly has it now. On February 27th the American pay-television giant said it would make a £22.1bn ($30.7bn) offer for Sky, the European satellite broadcaster, potentially disrupting Disney’s agreed $66bn purchase of much of 21st Century Fox.
The surprise announcement comes as Fox, which owns 39% of Sky, is trying to get regulatory approval in Britain for its own purchase of the remaining 61% of the satellite broadcaster, which it would then hand over to Disney after shareholders and regulators approve that deal (perhaps by the end of this year). By putting himself in the middle of that complex transaction, with an all-cash offer 16% richer than that of Fox, Mr Roberts is causing people to wonder what his goal is. He had tried to outbid Disney for Fox’s assets in the autumn, but gave up due to a lack of engagement from Mr Murdoch. He may now only be after Sky, or he may intend to make a still bigger hostile bid to top Disney’s.
In American media-industry circles the betting is on the latter, as investors there take a dim view of the prospects of Sky, which relies on a declining form of distribution in satellite and whose pay-TV subscribers are increasingly fickle (see chart). “It’s hard to see it as anything other than a prelude for a bigger bid for Fox,” says Craig Moffett of MoffettNathanson, a research firm. Such a bid is not realistic at the moment because American regulators have sued to block a similar vertical merger, AT&T’s purchase of Time Warner. If AT&T were to win that case, Mr Roberts might feel emboldened to make a play for Fox’s other assets, including its film studio and TV networks.
For now Mr Roberts is telling investors that his bid makes sense, partly because he views Sky as being more than a satellite broadcaster. Like Comcast, which bought NBCUniversal in 2011, Sky operates TV networks in sports, news and entertainment, produces original shows and holds sports rights in key markets (which are getting cheaper in Europe, in contrast to sports-rights inflation in America). Sky has 23m retail customers in Europe, compared to Comcast’s 29m at home. “Operationally we do very similar things,” Mr Roberts says. That makes for a good fit now, he says, while building scale for the challenges posed by Netflix and Amazon. Sky also has a Netflix-like product, Now TV, that has gained in popularity as customers drop its more expensive satellite packages.
Despite disapproval from Comcast investors, who would probably prefer the company to buy back shares (Comcast’s share price has fallen by 8.5% since the announcement), there is a case to be made for buying Sky. In January it posted strong results for the last six months of 2017, with 5% revenue growth and 10% growth in earnings before interest, taxes, depreciation and amortisation, to £1.1bn. Then in February Sky secured the next three years of Premier League football rights for less than it paid last time, a surprise to some that increased the value of the company.
What Bob Iger, Disney’s chief, and Mr Murdoch will make of the timing is another question. For Mr Murdoch the Comcast announcement complicates the years-long drama that has been his effort to take full control of Sky. In February Fox promised to regulators that Sky News would get an independent editorial board, a move that was expected to help satisfy concerns that the network not be influenced by the Murdochs, who have a big presence in British media and operate Fox News in America. Mr Roberts notes that Comcast has been a reliable steward of NBC News.
Fox has reiterated its commitment to its offer of £11.7bn for the other 61% of Sky, made in December 2016. Disney has said nothing. If Mr Iger wants to safeguard Disney’s acquisition of the Fox assets, he can ask Fox to increase its offer for Sky, a cost that would eventually be borne by Disney. Either way it is clear Sky is worth more now, whether on its merits or as a pawn in a larger game.
Japan still has great influence on global financial markets
IT IS the summer of 1979 and Harry “Rabbit” Angstrom, the everyman-hero of John Updike’s series of novels, is running a car showroom in Brewer, Pennsylvania. There is a pervasive mood of decline. Local textile mills have closed. Gas prices are soaring. No one wants the traded-in, Detroit-made cars clogging the lot. Yet Rabbit is serene. His is a Toyota franchise. So his cars have the best mileage and lowest servicing costs. When you buy one, he tells his customers, you are turning your dollars into yen.
“Rabbit is Rich” evokes the time when America was first unnerved by the rise of a rival economic power. Japan had taken leadership from America in a succession of industries, including textiles, consumer electronics and steel. It was threatening to topple the car industry, too. Today Japan’s economic position is much reduced. It has lost its place as the world’s second-largest economy (and primary target of American trade hawks) to China. Yet in one regard, its sway still holds.
This week the board of the Bank of Japan (BoJ) voted to leave its monetary policy broadly unchanged. But leading up to its policy meeting, rumours that it might make a substantial change caused a few jitters in global bond markets. The anxiety was justified. A sudden change of tack by the BoJ would be felt far beyond Japan’s shores.
One reason is that Japan’s influence on global asset markets has kept growing as decades of the country’s surplus savings have piled up. Japan’s net foreign assets—what its residents own abroad minus what they owe to foreigners—have risen to around $3trn, or 60% of the country’s annual GDP (see top chart).
But it is also a consequence of very loose monetary policy. The BoJ has deployed an arsenal of special measures to battle Japan’s persistently low inflation. Its benchmark interest rate is negative (-0.1%). It is committed to purchasing ¥80trn ($715bn) of government bonds each year with the aim of keeping Japan’s ten-year bond yield around zero. And it is buying baskets of Japan’s leading stocks to the tune of ¥6trn a year.
Tokyo storm warning
These measures, once unorthodox but now familiar, have pushed Japan’s banks, insurance firms and ordinary savers into buying foreign stocks and bonds that offer better returns than they can get at home. Indeed, Japanese investors have loaded up on short-term foreign debt to enable them to buy even more. Holdings of foreign assets in Japan rose from 111% of GDP in 2010 to 185% in 2017 (see bottom chart). The impact of capital outflows is evident in currency markets. The yen is cheap. On The Economist’s Big Mac index, a gauge based on burger prices, it is the most undervalued of any major currency.
Investors from Japan have also kept a lid on bond yields in the rich world. They own almost a tenth of the sovereign bonds issued by France, for instance, and more than 15% of those issued by Australia and Sweden, according to analysts at J.P. Morgan. Japanese insurance companies own lots of corporate bonds in America, although this year the rising cost of hedging dollars has caused a switch into European corporate bonds. The value of Japan’s holdings of foreign equities has tripled since 2012. They now make up almost a fifth of its overseas assets.
What happens in Japan thus matters a great deal to an array of global asset prices. A meaningful shift in monetary policy would probably have a dramatic effect. It is not natural for Japan to be the cheapest place to buy a Big Mac, a latté or an iPad, says Kit Juckes of Société Générale. The yen would surge. A retreat from special measures by the BoJ would be a signal that the era of quantitative easing was truly ending. Broader market turbulence would be likely. Yet a corollary is that as long as the BoJ maintains its current policies—and it seems minded to do so for a while—it will continue to be a prop to global asset prices.
Rabbit’s sales patter seemed to have a similar foundation. Anyone sceptical of his mileage figures would be referred to the April issue of Consumer Reports. Yet one part of his spiel proved suspect. The dollar, which he thought was decaying in 1979, was actually about to revive. This recovery owed a lot to a big increase in interest rates by the Federal Reserve. It was also, in part, made in Japan. In 1980 Japan liberalised its capital account. Its investors began selling yen to buy dollars. The shopping spree for foreign assets that started then has yet to cease.
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